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ownership, and, consequently, of the control of the enterprise. Since, therefore, material progress is dependent upon the addition of new increments to the available supply of capital, its debt to protection is a large one.

Since protection increases the amount of invested capital, it follows that it increases the incomes of the mass of individuals. The argument is perhaps already evident, but let us state it, at least for the most important share in distribution, that of labor. As political economists agree, the wages of labor depend upon the marginal productivity of the laborer. Capital increases that productivity, and consequently raises wages. To illustrate, let us take two countries, Denland and Norland. They possess the same number of laborers, similar natural resources, the same technical system, and the same amount of accumulated capital. It is evident that under our principle, the real wages will be the same in the two countries. If, however, Denland differs from Norland only in having a larger amount of accumulated capital, then the marginal laborer in that country is working with improved equipment, and will turn out a larger product than the marginal laborer in Norland. Accordingly wages will be higher. Likewise, an increase in accumulated capital in Norland itself improves the facilities with which the marginal laborer works, and consequently increases his product and his wage. Under protection, therefore, wages will be higher than under free trade.

Protection, as a system, has seemed to the economists to lack a fundamental basis only because they have insisted upon judging it on the basis of the static and individualistic assumptions underlying their own creeds. We must remember that free trade is a theory of the proper utilization of definitely limited factors of production. Protection is a theory of the development out of crude human stuff and natural resources of the largest possible productive funds and of the best conservation of these funds. It goes back of the factors of production, the starting-point of the free trader, and seeks to increase their size and intensify their force. When development stops, and society becomes static, then it will be to our advantage to adopt the free-trade theory of maximum utilization. But so long as industrial society possesses capacity for growth, we can best profit by clinging to the use of the developmental theory of protection.

154. Protection and the National Defense

Until a few months ago it was conventional to insist that even the partial free trade which has been attained in the Western world has caused the war-drum to throb no longer. The argument was rational, and since it was assumed, for some unknown reason, that man's

actions were rational, it was quite convincing. It ran something like this: The actions of nations, like those of individuals, are premised upon a desire to realize the highest measure of material welfare. States are, therefore, likely to do those things which lead to an increase in welfare, and to leave undone those things which seriously threaten it. Now commerce ties industrial countries together with bonds of common pecuniary interests. So close are these and so intricate is the scheme of pecuniary interests which is created, that anything which breaks the commercial nexus seriously threatens the profits and material welfare of capitalists and laborers alike in many industries in many countries. Because these relations are not of dependence, but rather of interdependence, nations cannot afford to fight. The antipathy to fighting is strengthened by the prominence of commercial opinion in determining national policy. On the contrary the gains from war are illusory. Increases in territory are nominal rather than real. They are attended by no great increase in material welfare. Indemnities do not repay their cost of collection. Loot is a breach of the ethics of warfare. Consequently the partial free trade of the present is an excellent investment in peace insur

ance.

Unfortunately, however, the events of the last few months have proved that the wisdom of nations does not reside in the rational calculations of ledgers. The pecuniary fact has as yet completely conquered neither the statesman nor the man in the street sufficiently to make economics the basis of national action. Instinct and impulse are still associated with rationality in political judgment. Race and creed and politics are still matters of concern. The pocketbook has not mastered hate, and the bank-ledger has not as yet won the victory over jealousy. Accordingly, the European conflict teaches quite clearly that, whatever may be rational, there is more than a possibility that a nation may find itself suddenly at war.

The supreme national duty, then, is to be ready for war. In this preparation the tariff policy is a matter of the greatest moment. Clearly, whatever may be our disadvantage, it will not do to depend upon a foreign source of supply for munitions of war. A navy alone may stand between us and that source. Should the fleet be defeated, there would be no chance for us to save ourselves. But only a moment's reflection is necessary to show that, even if we manufacture our own munitions, it is equally necessary that we produce the raw materials out of which they are to be made. The cutting off of a single essential raw material would prove fatal. To munitions must be added all that long list of articles which, under modern conditions, are essential to the successful conduct of the war. Sol

diers, if they are expected to win battles, must be properly fed, clothed, and housed. We can depend upon the caprice of import for no article essential to their personal efficiency. We must also have many auxiliary articles and devices upon which the success of the force as a fighting unit depends. These include horses, automobiles, gasoline, copper, steel, drugs, chemicals, and innumerable other things. Our transportation system, too, must be prepared to meet military exigencies. In short, war practically involves, as it is carried on under the modern machine process, making the whole industrial system function toward military efficiency. War comes unexpectedly. An industry, on the contrary, cannot be quickly started. Time and experimentation are necessary to make it fit into a complicated industrial scheme. Consequently industries which supply every essential article required in war must be built up to high efficiency in time of peace. At best we can expect only a few industries to be built up in just the right way in response to the capricious demand of pecuniary profit. A use, and a very extensive use of protection is, therefore, necessary, to prepare a nation for the acute stress that may mean life or death.

F. THE INFLUENCE OF THE TARIFF ON WAGES 155. High Wages an Obstacle to Manufacture20

BY DANIEL WEBSTER

The present price of iron at Stockholm is not far from $40.00 at the mines. Freight, insurance, and duty make the price of Swedish iron in our market about $83.00. We perceive by this that the cost. of the iron is doubled in reaching us from the mine in which it is produced. Why, then, cannot iron be manufactured at home? Our ore is as good, or better. Nothing could be more sure of a constant sale. It is an article of absolute permanent necessity.

Sir, the true explanation seems to me to lie in the present prices of labor. I think it would cost us precisely that which we could worst afford, that is, great labor. The principal ingredient in the cost of bar iron is labor. Of manual labor, no nation has more than a certain quantity, nor can it be increased at will. As to some operations, indeed, its place may be supplied by machinery; but there are other services which machinery cannot perform for it, and which it must perform for itself. A most important question for every nation is how it can best apply that quantity of labor which it is able to 20 Adapted from a speech delivered in the House of Representatives, April 1 and 2, 1824.

perform. Labor is the great producer of wealth; it moves all other causes. If we call machinery to its aid, it is still employed, not only in using the machinery, but in making it. Now, with respect to the quantity of labor different nations are differently circumstanced. Some need, more than anything, work for hands; others require hands for work; and if we ourselves are not absolutely in the latter class, we are still, most fortunately, very near it. I cannot find that we have idle hands. The price of labor is a conclusive and unanswerable refutation of that idea; it is known to be higher with us than in any civilized state, and this is the greatest of all proofs of general happiness. Labor in this country is independent and proud. It has not to ask the patronage of capital, but capital solicits the aid of labor. This is the general truth in regard to the conditions of our whole population. The mere capacity to labor in common agricultural employments gives to our young men the assurance of independence. We have been asked whether we will allow the serfs of Russia and Sweden the benefit of making iron for us? Those same serfs, sir, do not make more than seven cents a day, and they work in these mines for that compensation because they are serfs. Have we any labor in this country that cannot be better employed than in a business which does not yield the laborer more than seven cents a day? This, it appears to me is the true question for our consideration. There is no reason for saying that we will work iron because we have the mountains that contain the ore. We might for the same reason dig among our rocks for the scattered grains of gold and silver which might be found there.

156. Protection and High Wages21

Not only are wages in the United States twice or three times the averages of Europe and from ten to twenty times those of Asiatic countries, but our hours of labor are the fewest in the world.

So far as can be learned from a rough computation of the averages in the United States, the American laborer now gets fully $2.50 per day in a week of 54 hours' work. If we should take the average of all men, women, and children wage-earners in this country, it would be well beyond the dollar-a-day line.

The question then follows: Is not the cost of living proportionally more here than abroad? There is very little difference, the same things considered, but the American lives much better and his needs are far in excess of the foreigner's because of his education, his intelligence, and his tastes. The American two-dollar-a-day man

21 Adapted from "Wages and Causes," in the American Economist, XXVIII, 175 (1901).

not only gets a better living for himself and his family than the European dollar-a-day man, but the American has another dollar for comforts, conveniences, luxuries, and pleasures unknown to the European laborer.

There must be some reason for this state of affairs, and this reason is the American system of protection. That system tends to make us do practically all our own work, keeping our money at home and in constant circulation, creating and sustaining a purchasing ability that demands more and more production, the very producers becoming greater consumers of each other's products.

We are not an agricultural people. We are not a manufacturing people. We are not a mining people. Nor are we fishermen or foresters. We are productive people, and our productions include every need of man and nearly every luxury. Our small surplus is readily sold abroad, and to a greater extent than our purchases.

This is the American system of protection. This is the reason for American wages and the cause of American habits and ways of living. Our diversification of production is the greatest economic leaven of our almost immeasurable loaf of prosperity. There is only one thing that will permanently lessen it—a reduction of wages made necessary by a repeal of one or more tariff schedules bringing us into competition with the dollar-a-day labor of Europe and the dime-a-day labor of Asia. Nor does the whole chain of interdependent industries have to be broken. The breaking of a single link will work irreparable disaster. We must preserve intact our splendid American policy of protection and its attendant high wages and universal prosperity.

157. The Effect of Industrial Changes on Wages22

BY ALVIN S. JOHNSON

A policy that draws labor from the fields that are of greater natural productiveness to fields of lower natural productiveness tends to reduce wages.

In any country wages are determined by the marginal productivity of labor. We will represent the various opportunities of employment that a country like the United States affords by the symbols, A, B, C, and D. A may stand for a group of industries in which we have exceptional advantages over foreign countries. B stands. for a group of industries in which our advantages are less, C one in which they are still less, and D the group of industries in which

22

Adapted from Introduction to Economics, 359–361. Copyright by D. C. Heath & Co. (1909).

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